Auditing Company Business
Auditing Company Business
To answer this question we need to understand the meaning of auditing first. Auditing in general is very essential and existing in every aspect of life, but in this instance auditing can be defined as:
“Auditing refers to an official examination of a company or a business accounts, to make sure money has been spent correctly, i.e. according to rules, regulations and norms.” source: Association of chartered certified accountants [online] from:http://www.accaglobal.com/
Reasons for auditing
There are a number of reasons why a company or a business or a funding body would require records to be audited:
- Audited financial documents of a company or a business are more trusted to its members, shareholders and public.
- Auditing process makes sure funds gained by a company or business are documented in a proper way. It also controls when and where expenditure is done for a company and it’s been approved by management.
- It functions as a check and balance over all financial activities in a company. Audit also keeps an account of assets of a company and verifies it is properly recorded in books.
- Audit is a process of keeping financial statements of a company in a standard format in order to find out where improvement is required.
- Most of the funding bodies required audited financial documents if a company needs to borrow some money from them.
Appointing an Auditor
When appointing an auditor, a good place to start would be asking other associations which often deal with them like bank managers & solicitors. Make sure auditor is fully qualifies, registered and required to meet the auditing standards set out by these professional bodies.
While appointing an auditor make sure following responsibilities are agreed with auditor:
- What their responsibilities are;
- What are there requirements to undertake the task
- What it will cost the establishment; and
- What the expected time frame is for completion.
This avoids any misunderstanding between accountants/auditors and member of companies. The way of appointment of an auditor may depend on the association's rules. It is common for the auditor to be appointed for the following year at the AGM. This appointment is most commonly made on the strength of a recommendation from the management committee. While appointing an auditor it is also one of the major concerns that appointed auditor is not in any sort of relationship with any working or executive member of a company just to avoid any potential for conflict of interest.
Do not appoint an auditor for the association who is:
- A past or present member of the management committee;
- A member of the association;
- An employee, supplier of goods or services or a servant of the association; or
- An employer, partner or family member of a member of the association's management committee.
The role of the auditor
The purpose of an audit is to enable an auditor to express a professional and independent opinion on the financial statements of the association. It is the responsibility of the management committee to provide the financial statements.
The auditor will, on the basis of the financial statements, take reasonable steps to ensure that:
- The accounting records of the association are adequate to prepare the financial statements;
- The financial statements are reliable;
- The results for that particular period are shown in the financial statements
It is not the task of the auditor to find all errors or fraud; therefore the management committee cannot rely on the auditor's work as a substitute for the performance of their own duties. Every member of the committee must pay close attention to the association's financial statements at all times.
The auditor's task is to provide a professional opinion on the state of the financial affairs of the association, and auditors have a legal responsibility for their opinion. They can be held liable for negligence if the audit is not completed according to professional standards, or for damage to the association as a result of negligence.
As auditors are only acting as watchdogs for a company not solely responsible for any fraud or failure of company performance in public. Most of the companies have there own internal and for overall evaluation external auditors. Both of the auditors work together to make sure everything is in place in financial statements. Mostly this type of relationship exists in large companies or establishments, otherwise in smaller companies there is only one team of auditor which works with company accountants. The work of auditors is also important for the company or businesses in following three ways:
- Making more profits
- Paying less tax
- Generating more capital value
Appointed Auditors certifies the financial statements of a company which is very important for stakeholders, investors and regulators. Before they give green signal to the accountability of a company they make sure these following criteria’s are satisfied in a financial statement before it goes to the tax department.
- Whether they present fairly, or give a true and fair view of, the financial position of the audited body and its expenditure and income for the year in question.
- Whether they have been prepared properly in accordance with relevant legislation and applicable accounting standards.
- For some companies, to keep check of their expenditure and income; and
- For some companies, on whether the part of the remuneration report to be audited has been properly prepared.
It is expected that the accountancy profession would play quite an important role in scandals such as Enron, Xerox, and WorldCom, as all they all deal with the financial accounts not showing a true and fair view the company. Hence it is the role of accountants to prepare and check the financial statements. Therefore I feel that in the essay it is worth analyzing who exactly in the accountancy profession was responsible for each action in scandals, and show how 'accountants move easily from watchdogs in their capacity as auditors to being the architects of clever deals and frauds as CFO's and CEO's.'.